I. Introduction | II. Trading | III. Hedging | IV. Leverage | V. Conclusion
Yamfore will be the first community backed lending protocol offering crypto-backed loans with no margins calls, liquidation risk, interest repayments and indefinite loan terms. Yamfore is able to accomplish all of this due to the protocol owning all the capital that it lends out. Yamfore, unlike traditional lending protocols / platforms, isn’t reliant on external lenders providing capital to the protocol. The Yamfore protocol simply relies on the passive staking rewards earned by the deposited ADA collateral of borrowers in the protocol, with no further/other payment obligations required.
Because of this approach, Yamfore is effectively able to take the risk of price volatility in the market on behalf of the borrower with no liquidation consequences, allowing passive loan positions without fear of margin calls, liquidation risks, interest repayments and indefinite loan terms. This blog post illustrates some of the strategies that can be used by borrowers of Yamfore or any other future community backed lending protocols.
All loan positions taken through Yamfore are simply represented as a Non-fungible token (NFT). These NFT deeds are tradeable via NFT marketplaces such as Jpg.store, CNFT.io, Artano etc. This enables some exciting strategies for borrowers to utilize, such as actively trading up their loan positions in a sideways macro market.
For example, a borrower initiates a crypto-backed loan against 100k worth of crypto assets through Yamfore at an 70% loan to value ratio (LVR). This means a stablecoin payment of 70K is received by the borrower and an effective “30k deficit” is locked via their $CBLP deposit due to their secured 70% LVR. During sideways price movements in the cryptomarkets, a borrower is still able to profit on their position by trading their exposure through reputable NFT marketplaces. This is especially true if the current LVR lending rates of Yamfore are significantly lower than the LVR rate secured by the borrower’s loan position. A sell price of 40k USD for the borrower’s 100k ADA & CBLP loan position secured at an 70% LVR could represent a very compelling offer for buyers when faced with a much lower LVR if opting to borrow directly from the protocol. If this trade were to successfully occur, the borrower would receive a 10% return on investment (ROI) based on the entire value of their 100k exposure, and the buyer is able to secure much more favorable loan terms than they would have directly through the Yamfore protocol.
In the event of a major market downturn, the borrower is also able to effectively hedge their position by selling off their secured loan position and re-entering the market at a much more favorable ADA price point. This can increase their raw ADA exposure, even in the event of securing less favorable LVR loan terms from the protocol. From a bitcoin standpoint, this would be a similar effect as being “ down in $USD but up in Sats” however in this case, it’s ADA.
Although the sale price of a borrower’s loan exposure would typically be reduced / less favorable due to the sale occurring in a market downturn. Depending on how favorable the secured loan term of the borrowers position is, as well as the severity of the market downturn, the borrower still has a reasonable chance at recuperating most, if not, all their paper “losses” utilising this hedging strategy.
A borrower seeking to increase their exposure to the cryptomarket could effectively utilize the Yamfore protocol as a leveraging tool. This strategy basically consists of “double dipping” so to speak. For example, a borrower opens a loan position through Yamfore, and then exchanges their received stablecoin payment for more crypto assets to once again open another loan position through the protocol, and so forth. This is repeatedly done till the borrower obtains their desired crypto exposure / exhausts their capital. Utilizing this strategy, a borrower can effectively multiply their crypto exposure without any risk of liquidation, nor added hassle and expense of managing interest repayments.
*Note: This strategy should only be utisted by experienced crypto investors that fully understand all risk factors involved*
These are just some of the many advantages of utilizing community backed lending protocol that puts the interest / well being of borrowers first. This represents a significant step forward in DeFi, truly enabling set & forget crypto-backed loans to anyone & everyone without the risk of liquidations / margin calls, interest repayments and indefinite loan terms.
Please note, there are always risks to everything, including community backed lending protocols. Borrowers should always be cautious of overexposure to the native governance and utility token of the CBLP base lending protocol, and manage that risk accordingly.
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